How to Calculate Price to Cash Flow Ratio

Price to Cash Flow Ratio (P/CF) is a financial ratio used to compare the share price with cash flow per share. The lower the ratio, the more likely that the stock may be undervalued. P/CF is more stable than Price-Earnings Ratio (P/E), since cash flow is usually less volatile than earnings. It can be calculated as follows:

Formula:
P/CF = Market price per share / Cash flow per share
Note: Cash flow per share is simply cash flow divided by the number of shares issued.

Example:
The stock for Company JKL is selling at $25 a share.
The total number of shares issued for the period is 10,000.
The company's operating cash flow for the four most-recent quarters are $30,000, $50,000, $60,000 and $70,000.
Calculate the price/cash flow ratio.

Solution,
The operating cash flow for the past 12 months = 30,000 + 50,000 + 60,000 + 70,000 = $210,000
Cash flow per share = $210,000 / 10,000 = $21
P/CF = 25 / 21 = 1.19

* Next: How to Calculate Cash Ratio
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Kelvin Wong Loke Yuen is an experienced writer with a strong background in finance, specializing in the creation of informative and engaging content on topics such as investment strategies, financial ratio analysis, and more. With years of experience in both financial writing and education, Kelvin is adept at translating complex financial concepts into clear, accessible language for a wide range of audiences. Follow him on: LinkedIn.

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